SIGAR

SIGAR Audit Reveals Risks to U.S. Aid Dollars, Development of
Sound Afghan Financial Sector

-Oversight of Cash Leaving Kabul International Airport Cited as a Concern-

Arlington, Va. - The Office of Special Inspector General for Afghanistan Reconstruction today released an audit showing that efforts to safeguard U.S. cash entering the Afghan economy and to develop the Afghan financial sector have been hampered by limited interagency coordination, inconsistent Afghan cooperation and insufficient cash controls.

SIGAR found that U.S. agencies have limited visibility over U.S. cash that enters the Afghan economy -- leaving it vulnerable to fraud and diversion to the insurgency. SIGAR also found that poor cooperation by the Afghan government has impeded U.S. efforts to help develop the Afghan financial sector.

"The United States has poured billions of aid dollars into a country plagued by corruption, insurgency and the narcotics trade. It is essential that we use all available tools to ensure that U.S. dollars are protected from fraud and diversion to the insurgency. We must also ensure that the Afghan government is a full partner in efforts to set a fledgling financial sector on sound footing,"said Herbert Richardson, acting Special Inspector General for Afghanistan Reconstruction.

"SIGAR auditors found that U.S. agencies have not done all they can to safeguard U.S. funds, and the Afghan government has not provided the cooperation needed to build a strong, secure financial system. SIGAR's recommendations, if implemented, would address these shortcomings and strengthen efforts to protect American taxpayers."

Background:

Since 2002, Congress has appropriated more than $70 billion to implement security and development assistance projects in Afghanistan, with some of those funds converted into cash which flows through the Afghan economy.

The United States is implementing programs to increase the capacity of Afghanistan's central bank to regulate the nation's 17 commercial banks and to strengthen U.S. and Afghan law-enforcement monitoring of controls over the flows of U.S. aid through the Afghan economy.

SIGAR's audit evaluates U.S. efforts to improve the capacity of the Afghan government to regulate the financial sector and assesses controls that U.S. agencies use to track U.S. funds as they flow through the Afghan economy.

Key findings:

• Although U.S. agencies have taken steps to strengthen their oversight of U.S. funds, the United States still has limited visibility over how these funds flow through the Afghan economy, leaving them vulnerable to fraud or diversion to insurgents. Among the vulnerabilities identified by SIGAR auditors: U.S. agencies do not record the serial numbers of cash disbursed to contractors and other recipients of U.S. funds; Afghan commercial banks do not record the serial numbers of Electronic Funds Transfer payments by U.S. agencies to contractors and other recipients when they are converted to cash; U.S. contracting regulations do not prohibit prime contractors from using unlicensed hawalas to pay subcontractors or require them to use EFT-capable banks to make payments. As a result, the United States is unable to record information on these funds when they enter Afghanistan's economy, and the Afghan and U.S. governments are unable to track these funds as they move from person to person, information that could be important for law enforcement purposes.

• Limited Afghan cooperation has negatively impacted programs to strengthen Afghanistan's financial sector and address money laundering and terrorist financing. For example, the Afghan Attorney General's office has not cooperated fully in prosecuting individuals suspected by the U.S. Treasury Department of having committed financial crimes, limiting the effectiveness of the Financial Transactions and Records Analysis Center of Afghanistan (FinTRACA). Of 21 leads forwarded by FinTRACA to the Afghan government, only four were pursued to prosecution by the Afghan Attorney General's office. In addition, Treasury officials report that Afghan President Hamid Karzai has barred U.S. government advisors from the Afghan central bank, a key institution which they described as having a "hostile"environment.

• Limited Afghan cooperation has hindered the U.S. Department of Homeland Security's efforts to strengthen controls over currency flows at Kabul International Airport. As a result of concerns over lack of controls over the significant flow of currency through the airport, DHS developed the Bulk Cash Flow Action Plan with assistance from Afghan ministries that conduct operations at the airport. DHS's responsibilities under the Bulk Cash Flow Action Plan include supporting Afghan government efforts to strengthen controls over passengers leaving Afghanistan with bulk cash. However, DHS reports that installation of two custom-built bulk currency counters for the airport's customs areas was delayed by seven months because of disagreements over where to place the machines. Also, as of SIGAR's April 2011 visit to the airport, Afghan customs officials were using the machines to count declared cash - but not to record serial numbers or report financial data to FinTRACA. Other impediments to DHS efforts include the Afghan government's practice of allowing VIPs to bypass the main security and customs screenings used by all other passengers; these VIPs are required to declare their currency, but Afghan officials reportedly have no plans to scan this cash through currency counters. Additionally, DHS officials are barred from the facility that VIPs currently use.

• U.S. agencies have not fully coordinated their programs to develop Afghanistan's financial sector, putting U.S. agencies at risk of working at cross-purposes or missing opportunities. For example, the U.S. Department of Defense and DHS have not coordinated their individual efforts at the same commercial banks, limiting interagency cooperation.

SIGAR makes one recommendation to the U.S. Ambassador to Afghanistan to improve interagency coordination on financial sector issues and three recommendations to the Secretaries of State and Defense to strengthen oversight over the flow of U.S. funds through the Afghan economy.

The audit (SIGAR Audit 11-13; "Limited Interagency Cooperation and Insufficient Controls Over U.S. Funds in Afghanistan Hamper U.S. Efforts to Develop the Afghan Financial Sector and Safeguard U.S. Cash") may be found on the SIGAR website at http://www.sigar.mil/audts/reports.html.